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REPORT 


ON    THE 


Bonding  of  City  and  County 
Employees 

FEBRUARY   25,   1915 


LIBRARY 


ITY  OF  CALIFORNIA 
LOS  ANGELES 


OFFICB   or 

THE  COMMISSIONER  OF  ACCOUNTS 
CITY  OF'  NEW  YORK 

LEONARD    M.    WALLSTBIN 
ComtoUiloner 


REPORT 


ON    THE 


Bonding  of  City  and  County 
Employees 

FEBRUARY  25,  1915 


OFFICE  OF 

THE  COMMISSIONER  OF  ACCOUNTS 
CITY  OF  NEW  YORK 

LEONARD    M.    WALLSTEIX 
Comir.issioner 


CITY  OF  NEW  YORK, 

OFFICE  OF  THE  COMMISSIONERS  OF  ACCOUNTS, 
MUNICIPAL  BUILDING, 

February  25,  1915. 

Hon.  JOHN  PURROY  MITCH  EL, 

Mayor: 

SIR — Pursuant  to  your  request,  an  investigation  has  been 
made  as  to  the  cost  to  the  city  arising  from  the  payment  of 
premiums  for  the  bonding  of  city  and  county  employees,  and  as 
to  the  effectiveness  of  the  protection  afforded  by  such  bonds. 

Legal  Requirements. 
Section  55  of  the  Charter  provides  as  follows : 

"  It  shall  be  the  duty  of  the  board  of  aldermen  where 
no  provision  has  been  made  by  law  in  respect  thereto,  to 
provide  for  the  accountability  of  all  officers  and  other  per- 
sons, save  as  herein  otherwise  provided,  to  whom  the  re- 
ceipt or  expenditure  of  the  funds  of  the  city  shall  be  en- 
trusted, by  requiring  from  them  sufficient  security  for  the 
performance  of  their  duties  of  trust,  which  security  shall 
be  annually  renewed ;  but  the  security  first  taken  shall  re- 
main in  force  until  new  security  shall  be  given.  In  the 
event  of  a  failure  of  the  board  of  aldermen  to  fix  any  such 
bond,  the  heads  of  the  respective  departments  and  the 
presidents  of  the  several  boroughs  shall  have  power  to 
fix  such  bond  subject  to  modification  by  the  board  of 
aldermen." 


In  addition  to  the  general  bonding  powers  provided  by  the 
foregoing  to  the  board  of  aldermen  and  the  heads  of  departments, 
requirements  are  made  in  various  state  laws,  charter  provisions 
and  city  ordinances  for  the  bonding  of  incumbents  of  numerous 
official  positions. 

Under  chapter  481,  laws  of  1912,  amending  chapter  47,  sec- 
tion 11,  of  the  Consolidated  Laws,  only  those  premiums  paid 
for  bonding  state  or  local  officials  were  made  a  charge  against 
the  state  or  municipal  corporation  to  which  the  official  was  bond- 
ed. However,  on  April  19,  1913,  the  law  was  amended  by 
chapter  325,  as  follows : 

"  If  the  surety  on  an  official  undertaking  of  a  state  or 
local  officer,  clerk  or  employee  of  the  state  or  political  sub- 
division thereof  or  of  a  municipal  corporation  be  a  fidelity 
or  surety  corporation,  the  reasonable  expense  of  procuring 
such  surety,  not  exceeding  one  per  centum  per  annum 
upon  the  amount  of  such  undertaking  shall  be  a  charge 
against  the  state  or  political  subdivision  or  municipal  cor- 
poration respectively  in  and  for  which  he  is  elected  or 
appointed." 

By  this  enactment  the  expense  of  all  required  bonding  of  em- 
ployees, as  well  as  officials,  became  a  charge  against  the  munici- 
pality to  the  extent  of  the  service  rendered  to  it. 

Scope  of  Examination. 

For  the  purpose  of  ascertaining  the  extent  of  the  expendi- 
tures of  the  city  in  this  respect,  schedules  were  prepared  from 
the  records  of  the  department  of  finance  respectively  for  the 
periods  covered  by  the  year  1913,  and  from  January  1  to  Sep- 
tember 15,  1914.  In  these  schedules  were  incorporated  some 
additional  items  of  bonded  employees  in  Bellevue  and  Allied  Hos- 
pitals, Bronx  Parkway  Commission,  and  the  Department  of  Edu- 


cation,  as  obtained  from  those  departments  and  which,  under 
the  amended  law,  appeared  to  constitute  a  potential  charge 
against  the  city. 

Methods  of  Procedure. 

A  study  of  these  schedules  showed  that,  prior  to  1914,  the 
bonding  of  employees  was  performed  in  a  haphazard  manner, 
and  apparently  without  regard  for  a  systematic  designation  of 
those  employees  who,  by  the  nature  of  their  services,  should  be 
bonded  at  the  expense  of  the  city.  For  the  stated  period  of  1914, 
greater  consistency  of  designation  appears,  with  an  increase  in 
the  number  of  bonded  employees,  apparently  largely  due  to  the 
amended  law  of  1913,  as  shown  in  the  following  recapitulation 
of  the  schedules : 

Jan.  1, 1914,  to  Sept. 
Year  of  1913.  15,1914. 

A A 

t  \    f  \ 

Number  of  employees 
bonded — 

City  Offices   646  735 

County  Offices   ..  141  210 


Totals  . ,  7S7  945 


Total  amount  of 
bonds — 

City  Offices   $4,654.800  00  $5.170.400  00 

County  Offices   ..     1,587,00000  2,504,00000 

Totals $6.241.800  00  $7,674.400  00 

Net  cost  to  City  for 
premiums — 

City  Offices   $7.16662  $9.91332 

County  Offices   . .  5,920  55  10,504  88 

Totals '. $13.08717  $20.41820 


The  determination  as  to  which  employees  should  be  bonded, 
and  as  to  the  amounts  of  their  bonds,  is  made  by  the  head  of 
each  department,  but  it  appeared  from  a  scrutiny  of  the  schedules 
for  the  stated  period  of  1914,  that  the  employment  of  such  dis- 
cretion might  be  less  perfunctorily  and  more  economically  applied 
in  many  cases  where  excessive  or  unnecessary  bonds  have  been 
secured.  The  following  instances  have  been  noted  as  worthy  of 
consideration  in  this  respect. 

Borough  Presidents. 

In  The  Bronx,  the  bookkeeper  handles  all  receipts  of  the 
office,  deposits  these  daily  to  the  credit  of  the  Borough  President, 
and  transmits  them  weekly  to  the  Chamberlain  and  Comptroller. 
Most  of  the  receipts  are  in  checks,  and  the  total  amount  in  his 
hands  at  one  time  rarely  exceeds  the  sum  of  $3,000.  An  assistant 
clerk  performs  the  same  duties  only  in  the  absence  of  the  book- 
keeper on  vacation  or  otherwise.  Each  of  these  employees  is 
bonded  for  $10,000.  A  bond  of  $5,000  would  appear  to  be  more 
than  ample  in  each  case,  and  would  save  premiums  of  $20. 

The  cashier  of  the  Bureau  of  Highways  in  The  Bronx  rarely 
receives  more  than  $500  daily,  which  he  daily  transmits  to  the 
bookkeeper.  An  assistant  clerk  performs  the  same  duties  in 
his  absence.  Each  of  these  employees  is  bonded  for  $5,000.  A 
bond  of  $1,000  each  would  save  premiums  of  $18. 

A  messenger  in  The  Bronx  conveys  weekly  deposits  to  the 
Comptroller,  consisting  invariably  of  bank  checks,  and  handles 
no  cash.  He  is  bonded  for  $2,500  at  an  expense  of  $5. 

In  Queens,  the  Secretary  of  Buildings  is  bonded  for  $2,000 
at  an  expense  of  $5.  No  similar  bond  is  required  in  other  bor- 
oughs. 

Department  of  Docks  and  Ferries. 

Seven  clerks  are  shown  on  the  schedule  as  under  a  bond  of 
$3,000  each.  We  are  informed  by  the  deputy  commissioner  that 


their  work  is  so  closely  under  observance  that  irregularities 
would  hardly  be  possible,  and  that  a  bond  of  $1,000  for  each  of 
the  clerks  would  be  more  than  ample.  A  reduction  of  their  bonds 
accordingly  would  save  $34  in  premiums. 

Twenty-nine  ticket  agents  are  scheduled  as  under  bonds  of 
$3,000  each.  These  employees  handle  cash  and  tickets  to  the 
value  of  about  $1,500  at  one  time,  and  a  bond  for  $2,000  each 
would  be  ample.  The  department  employs  thirty-six  ticket  agents, 
and  a  reduction  of  each  bond  for  this  number  of  employees  would 
save  $108  in  premiums. 

Department  of  Public  Charities. 

Twenty-eight  persons  are  bonded  in  this  department  in  the 
1914  period.  The  list  includes  the  second  and  third  deputy  com- 
missioners, the  superintendents  of  the  Bureaus  of  Dependent 
Adults  and  the  bookkeeper  in  the  administration  office,  none  of 
whom  handle  cash.  An  elimination  of  these  bonds  would  save 
$65  in  premiums. 

Department  of  Finance. 

In  the  1914  period  428  persons  are  bonded  at  a  cost  to  the 
city  of  $6,026.28.  These  include  192  temporary  employees  in  the 
office  of  the  Receiver  of  Taxes,  also  bookkeepers,  stenographers, 
searcher  and  watchman  in  the  several  divisions. 

Department  of  Health. 

The  secretary  of  the  department  is  bonded,  as  custodian  of 
funds  for  contingent  expenses,  in  the  sum  of  $6,000  at  a  premium 
cost  of  $30.  It  would  seem  that  the  amount  of  this  bond  is 
excessive. 

The  foregoing  instances  were  noted  from  a  general  observa- 
tion of  the  schedule.  It  is  probable  that  a  judicious  application 


8 

of  the  more  intimate  knowledge  of  conditions  possessed  by  de- 
partment heads  might  result  in  further  economies  along  these 
lines. 

Municipal  Courts. 

Section  1373  of  the  charter  requires  a  bond  of  $5,000  for  each 
clerk  of  court,  deputy  clerk  and  assistant  clerk  in  each  district  of 
each  borough.  For  this  class  of  bonded  employees  the  city  has 
expended  during  the  1914  period  the  sum  of  $876.39  for  pre- 
miums. Periodical  examinations  are  made  by  this  commission  of 
the  financial  transactions  of  each  court,  and  it  appears  that  the 
financial  responsibility  of  a  court  may  readily  be  confined  to  the 
clerk,  and  a  deputy  or  assistant  clerk ;  whereas,  under  the  law, 
bonds  now  are  required  for  additional  deputy  and  assistant  clerks 
in  eleven  of  the  twenty-four  districts.  This  is  particularly  notice- 
able in  the  first  district,  Manhattan,  which  has  one  deputy  and 
six  assistants,  and  the  second  district,  Manhattan,  which  has  one 
clerk,  one  deputy  and  six  assistants.  , 


Premium  Disbursements  for  Bonds  Running  to  Other 
Beneficiaries. 

During  the  examination  it  was  observed  that  many  bonds  on 
which  the  city  has  paid  the  premiums  afforded  no  compensating 
terms  for  direct  recovery  of  damages  by  the  city,  such  bonds  being 
written  to  run  to  the  State  or  to  individuals.  This  condition  is 
particularly  noticeable  in  the  bonding  of  county  employees,  where 
a  premium  liability  of  more  than  ten  thousand  dollars  was  found 
accruing  to  the  city  in  the  current  year  for  employees  bonded  to 
other  beneficiaries. 

The  bonds  of  the  County  Clerks,  Registers  and  Sheriffs  run 
to  the  State  of  New  York,  and  presumably  cover  damages  accru- 
ing from  the  work  of  their  offices,  the  responsibility  for  which 


would  lie  with  their  subordinates.  The  subordinates  are  in  turn 
bonded  to  these  officials  for  the  faithful  discharge  of  their  several 
duties.  Should  a  necessity  arise  for  the  recovery  of  damages  the 
city  would  have  to  apply  to  the  court  for  permission  to  sue  on 
these  bonds  (Code  Civil  Proc.,  Section  1888,  182  N.  Y.,  369), 
although  it  pays  all  of  the  premiums. 

A  review  of  the  subordinates  thus  bonded  presents  an  appar- 
ent lack  of  necessity  for  bonding  many  of  them.  More  particu- 
larly is  this  apparent  in  the  office  of  the  Sheriff,  New  York 
County,  where  persons  employed  as  counsel,  clerks,  cleaners, 
engineers,  van  drivers,  messenger,  etc.,  are  bonded  to  the  Sheriff. 
However,  under  chapter  523,  laws  of  1890,  the  Sheriff  of  New 
York  County  is  authorized  to  require  bonds  from  any  of  his 
subordinates,  and  under  chapter  325,  laws  of  1913,  previously 
referred  to,  the  cost  of  the  bonds  becomes  a  charge  against  the 
city.  In  an  opinion  of  the  Corporation  Counsel,  rendered  March 
23,  1914,  the  sheriff  is  given  full  discretion  in  the  designation  of 
his  subordinates  who  shall  be  required  to  give  bonds. 

The  premiums  paid  by  the  city  in  1914  for  bonding  the  Sheriff, 
New  York  County,  and  his  employees  amounted  to  $3,954.10. 
Of  this  amount  $500  was  paid  for  a '$100,000  bond  of  the  Sheriff 
to  the  State  of  New  York.  The  remainder  was  for  bonds  of 
subordinates,  all  running  to  the  Sheriff. 

A  further  scrutiny  of  conditions  discloses  a  considerable  dif- 
ference in  the  amounts  of  bonds  required  from  certain  classes  of 
employees  in  the  different  counties,  which  suggests  injudicious 
determination  as  to  the  amount  of  security  necessary.  This  also 
is  particularly  noticeable  in  the  Sheriff's  offices.  The  activities 
of  New  York  County  exceed  those  of  the  other  counties,  yet 
keepers  and  prison  guards  in  Bronx  and  Kings  counties  are 
bonded  at  $5,000  each  and  in  New  York  County  at  $2,500  each. 
In  the  same  counties  a  chief  clerk  is  bonded  at  $10,000,  as  against 
$5,000  in  New  York,  and  the  cashier  of  Bronx  County  is  bonded 
at  $25.000,  as  against  $10,000  in  New  York. 


10 

» 

General  Conclusions. 

For  the  purpose  of  ascertaining  the  amount  of  benefit  derived 
by  the  city  from  the  bonding  of  employees,  a  request  was  made 
of  the  Department  of  Finance  for  information  as  to  all  amounts 
recovered  or  in  process  of  recovery  from  surety  and  bonding  com- 
panies for  defalcations  or  irregularities  of  employees  during  the 
period  from  January  1,  1913,  to  November  28,  1914.  In  response 
thereto,  the  deputy  comptroller  stated  as  follows : 

"  *  *  *  this  office  has  no  record  on  its  books  of 
the  recovery  of  any  such  moneys  during  the  period  men- 
tioned nor  has  it  any  knowledge  of  any  existing  proceed- 
ings for  recovery." 

The  net  cost  to  the  city  for  premiums  on  bonds  paid  from 
January  1,  1914,  to  September  15,  1914  was  more  than  twenty 
thousand  dollars.  About  $2,500  of  this  amount  was  expended 
for  premiums  on  bonds  running  to  the  State  of  New  York,  and 
about  $7,700  on  bonds  running  to  individuals. 

In  view  of  the  statement  of  the  Department  of  Finance  as  to 
the  apparent  integrity  of  bonded  employees,  and  of  the  excessive 
and  unnecessary  bonding  indicated  in  the  foregoing,  much  of  the 
expense  of  which  the  city  is  now  obliged  to  pay,  it  is  suggested 
that  the  city  might  safely  assume  the  risk  of  bonding  the  em- 
ployees and  thereby  save  to  the  city  treasury  the  large  amount 
hitherto  expended  for  premiums,  and  which  form  of  expenditure 
will  undoubtedly  be  greatly  increased  in  the  future  as  the  force 
of  the  present  law  becomes  better  known. 

In  the  event  of  the  continuance  of  the  present  system,  it  is  sub- 
mitted that  the  Comptroller  should  be  vested  with  authority  to 
determine  finally  upon  the  employees  to  be  bonded  and  the 
amounts  of  their  bonds,  in  order  to  secure  a  commensurate  but 
not  excessive  security  which  should  be  both  uniform  and  eco- 
nomical. 


11 

Recommendations. 

1.  That  the  State  of  New  York  be  requested  to  assume  the 
expense  of  all  bonds  which  run  to  the  State. 

2.  That  legislative  action  be  instituted  to  amend  section  55 
of  the  charter  to  provide  a  centralized  determining  power,  vested 
in  the  Comptroller,  as  to  the  designation  of  employees  to  be 
bonded  and  the  amounts  of  their  bonds,  when  not  otherwise  pro- 
vided for  by  law. 

3.  That  legislative  action  be  instituted  to  cause  the  bonds  of 
county  officials  and  their  subordinates  to  run  directly  to  the  city, 
or  that  the  bonding  of  such  subordinates  run  to  the  State  of  New 
York  in  like  manner  with  the  county  officials,  their  premiums 
thereby  becoming  a  charge  against  the  State. 

4.  That  the  heads  of  all  departments  and  the  several  county 
officers  having  employees  under  bond  be  requested  to  critically 
review  the  bonds  of  such  employees  with  a  view  to  an  economic 
revision  of  their  schedules,  as  indicated  in  the  foregoing  report. 

Respectfully  submitted, 

LEONARD  M.  WALLSTEIN, 

Commissioner  of  Accounts. 


.  I.  MOWN  FRINTINC  •  dlNDIMS  CO.  1639-15-500 

NEW  YORK 


